When 15 Years Means 15 Years: A Lesson in PILOT Agreement Drafting

In December 2024, the Appellate Division, Third Department affirmed a lower court decision in Matter of Peaceful Valley Housing Development Fund Corp. v Town of Johnsburg, a case that turned on a subtle—but pivotal—point of contract interpretation. Although the decision emerged from rural Warren County in the Adirondacks—far from the skyscrapers of New York City—its lesson is universal: when it comes to tax benefits, every word matters.

A Rural Setting, a Modern Legal Dispute
The Town of Johnsburg, situated roughly 75 miles north of Albany, approved a property tax exemption under the Private Housing Finance Law (PHFL) in 2004 for Peaceful Valley Townhouses, an 18-acre, 20-unit affordable housing project. The developers and the Town signed a Payment-in-Lieu-of-Taxes (PILOT) agreement in 2005 to lock in a 15-year exemption period, with Peaceful Valley making fixed annual payments of $6,000 per year initially ($300 per unit) instead of full property taxes. By early 2007, when the project was completed, everything seemed set. But as the 15-year mark approached, the parties clashed over when the exemption had actually started—and thus when it should end.

The Language at the Heart of the Controversy
The core dispute centered on the phrase “for a period of fifteen years commencing with the first tax year following completion of the project,” a seemingly straightforward clause that proved anything but. Peaceful Valley argued that “the first tax year following completion” meant the exemption would run from the beginning of the next full calendar year after the project was done, effectively stretching the exemption through December 31, 2022. Under their reading, because the final certificates of occupancy were issued in early 2007, the first full “tax year” following completion would be 2008—thus guaranteeing them exemption coverage through the end of 2022.

The Town of Johnsburg took a different tack. For the Town, “tax year” needed to be interpreted within the framework of New York’s real property assessment cycle, which turns on a taxable status date rather than a calendar year. The Town maintained that the PILOT agreement became effective on the first taxable status date after completion—March 1, 2007—and that the 15-year exemption clock started running then. By their count, Peaceful Valley enjoyed a full 15 years of exemption through 2021, and extending it another year would be granting a 16th year without statutory or contractual basis.

The disputed difference was no small matter. In one of the notices, the Town assessed approximately $48,000 ($2,400 per unit) in taxes once the exemption ended, a significant figure for a small affordable housing development. Both sides stood firmly by their interpretations, with Peaceful Valley insisting it had one more year and the Town holding fast to its 15-year limit.

The Courts Step In
Ultimately, the Supreme Court (the trial-level court) agreed with the Town, and the Appellate Division affirmed that decision. According to both courts, the evidence—ranging from annual tax bills to the assessment cycle’s statutory context—showed that Peaceful Valley had received the full 15 years it was promised. The courts would not read the contract in isolation from the statutory framework that defines how and when property taxes are assessed. To them, “the first tax year following completion” meant the first full cycle starting after the project was finished, not necessarily a calendar year. The Appellate Division found no ambiguity: Peaceful Valley had gotten what it bargained for, and the exemption had naturally ended before 2022 rolled around.

A Lesson for the Rest of Us
Though this dispute arose far from the complexities of New York City property tax law, the takeaway is as relevant in Manhattan as it is in the Adirondacks. When drafting PILOT agreements or interpreting tax exemption or abatement statutes, understanding commencement dates, completion dates, and “tax years” is crucial. Legislators, too, when drafting legislation, should define key terms such as “tax year” or “commencing after completion” with enough detail to avoid costly litigation down the line.

This case is a clear example: a single phrase caused confusion, disagreement, and a journey through the courts. Next time you’re negotiating or underwriting a property tax exemption or abatement, remember even the smallest linguistic choices can have large financial implications.